U.S. economy continues to power through despite gasoline spike

Trend watch

We’ve updated the personal tax refunds chart (slide 7, available to clients in the full report), which essentially wraps up tax filing season. Refunds were up 18.3% year over year, which is a meaningful boost to personal incomes for millions of Americans. On slide 8 (available to clients in the full report), we updated the nationwide averages for gasoline and diesel.

Additionally, container counts at the two largest U.S. ports – Los Angeles and Long Beach – jumped 11.9% combined in April, which is a nine-month high. Still, container traffic is down 3.9% on a year-to-date basis for the two West Coast behemoths compared to 2025.

Lastly, leisure travel is starting to ramp up with the onset of college and high school graduation season. The weekly U.S. air passenger count increased 2.0% to 17.3 million in the past seven days. This should continue to climb through the third week of July. At this point, we’re expecting it to peak just north of 20 million this summer. 

Our take

Much of the incoming April economic data continued to paint a picture of an expansion still gaining traction, though increasingly shaped by the influence of energy prices. Consumer activity remained resilient, supported in part by strong income dynamics, including personal tax refunds running 17.8% ahead of last year. This influx of cash likely provided an additional tailwind to household spending, helping to sustain momentum even as cost pressures intensified in key categories.

Retail sales underscored this resilience, rising to new all-time highs in April—even when excluding gasoline purchases. While higher gasoline prices clearly boosted headline sales, they weren’t the sole driver of strength. Underlying demand remained firm across core categories, suggesting that consumers continue to spend despite growing pressure from elevated living costs. That said, the composition of spending showed some strain, with autos acting as a drag on overall activity, offsetting part of the gasoline-driven gains. Auto sales are also likely being depressed by higher financing costs.

Existing home sales were flat in April, signaling continued constraints on transaction activity, but prices rose for a third consecutive month. The firming in home prices despite stagnant sales highlights ongoing supply tightness and underlying support for housing values.

Still, inflation dynamics in April were heavily impacted by energy, which proved to be the dominant force driving both consumer and wholesale prices. Surging fuel costs not only directly increased energy prices but also fed through into airline fares (aka transportation services), amplifying the broader inflationary impact.

The influence of energy was even more pronounced at the wholesale level. Producer prices rose sharply in April, driven primarily by the same surge in energy costs. On a year-over-year basis, energy remained a key contributor to elevated wholesale inflation, signaling continued pipeline pressures that could eventually filter through to consumers if sustained. This reinforces the notion that energy remains a central driver of the inflation outlook.

Meanwhile, the production side of the economy showed notable strength. Industrial production surged to its highest level since 2019 led by a solid rebound in automotive and aircraft/aerospace. This upswing suggests that supply-side conditions are improving, even as demand remains robust, providing a constructive backdrop for continued economic growth in the near term.

Yet, the fragile Middle East cease‑fire agreement and dueling blockade of the Strait of Hormuz continue to hang above the global economy like a proverbial Sword of Damocles. 

Bottom line

The U.S. economy continues to power through the uncertainty caused by the Iran War. Consumer activity remaining resilient—buoyed by larger tax refunds that appear to be offsetting higher energy prices. Likewise,  business activity is surging despite the cost pressures. While we expect higher energy prices to slow activity in the coming months, that impact has yet to materialize.